Aug. 2 (Bloomberg) -- SNC-Lavalin Group Inc., Canada’s
largest engineering company, cut its annual profit forecast as
it posted a surprise quarterly loss, hurt by fixed-price
projects in North Africa. The shares fell the most since March.

Net income for 2013 will be C$220 million ($212 million) to
C$235 million, the Montreal-based company said today in a
statement. Earlier this year, SNC projected earnings would rise
10 percent to 15 percent from 2012’s C$309.1 million, implying
profit of C$340 million to C$355 million.

SNC cited losses in the second quarter in its oil and gas
division and its infrastructure and environment unit. Chief
Executive Officer Robert Card, who is working to reshape the
company after a corruption scandal involving his predecessor,
said in the statement that 2013 is “proving to be a very
challenging year.”

SNC fell 6.1 percent to C$40.38 at the close in Toronto,
its biggest one-day slide since March 8. The shares are little
changed this year, compared with the 1.4 percent gain of
Canada’s benchmark Standard & Poor’s/TSX Composite Index.

The second-quarter loss of C$37.7 million, or 25 cents a
share, compared with net income of C$31.7 million, or 21 cents,
a year earlier, SNC said today.

Sell Assets

Card, who told shareholders in May that SNC would consider
paring some it its infrastructure concession investments, may
need to start selling assets soon, said Maxim Sytchev, an
analyst at Dundee Securities in Toronto.

“The worse engineering and construction results are, the
greater pressure there is to get transactional on company’s
concessions portfolio,” Sytchev, who has a buy rating on SNC,
said today in a note to clients.

SNC booked a loss of C$70.1 million in the oil and gas unit
relating to a claim received alleging late penalties under a
fixed-price project in Algeria.

SNC said in the statement that it “continues its
discussions with the client and it intends to deploy all
necessary actions to resolve these penalties, including taking
further actions to recover the additional costs incurred.”

The company blamed the loss in its infrastructure and
environment unit on a C$47 million “risk provision” it booked
after an unexpected attempt to draw this amount under letters of
credit, covering advance payment and performance. The letter of
credit had been previously issued in favor of a client on a
Libyan project that has been halted since 2011.

Libyan Projects

SNC “is not currently aware of any claim relating to the
advance payment or performance” and the company “is seeking to
clarify the situation surrounding this attempt to draw on the
letters of credit and will use all legal and other means
available to prevent any draws.”

Leslie Quinton, a spokeswoman for SNC, declined in an e-mail message to identify the project in question.

SNC’s Libyan projects at the time of the rebellion against
dictator Muammar Qaddafi included an airport, a prison and a
water line network known as the Great Man-Made River, according
to the company’s 2010 annual report. The report described the
prison, the Guryan Judicial City, as “the country’s first
detention center to comply with international human rights
standards.”

Cash and cash equivalents in thee quarter dropped to C$800
million as at June 30 from C$1.2 billion at the end of 2012. The
decrease is “mainly due to the timing of working capital
requirements to complete some Canadian projects,” the company
said.

SNC said it “expects that a number of current projects
will continue to temporarily require significant working capital
and that additional liquidity may be required to support the
implementation of its strategic plan.”

As a result, the company said it’s “considering various
possibilities to access additional sources of liquidity and
intends to manage its working capital more efficiently.” It
didn’t elaborate.